Client Service December 15, 2021

Financial Wellness Trends Shine a Light on Employee Needs

Areas of focus have shifted during the pandemic and will define trends for the new year.

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After living through a pandemic that has lasted for well over a year, U.S. investors’ behaviors and outlooks have clearly shifted, and their viewpoints about financial wellness have been similarly reshaped. Now, recent analyses highlight how employees’ needs and the use of financial wellness help have changed this year.

Betterment’s 401(k) business surveyed 1,000 full-time U.S. employees and found that, as of this fall, 54% of workers are somewhat or significantly more stressed about their finances than they were before the pandemic. On a positive note, 66% of employees reported that they have an emergency fund. Of those who didn’t, 81% indicated that it was because they didn’t have enough money to build one, rather than not understanding why it was necessary or not knowing how to build one.

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More than three-fourths of employees (76%) agree that the pandemic made them re-examine their financial wellness situation. Sixty-eight percent said they are prioritizing building their retirement fund more than they did pre-pandemic, 59% are prioritizing paying off credit card debt more now, and 35% are prioritizing paying off their student loan debt more.

Nearly half (46%) say they didn’t think they needed an emergency fund before the pandemic, but they do now.

Employee benefits executives have found that, in response, employers are offering several types of benefits this year for the first time, many as a result of the pandemic. Most notably, many employers are offering automatic emergency savings programs. In addition, participants’ financial wellness and emergency preparedness have become more important in advisers’ service models.

Retirement plan recordkeepers have also responded to the increased focus on emergency savings. They shifted how they see their role in ensuring financial security for participants and reacted to plan sponsor demand.

Looking at More Than Just Retirement Plan Actions

“Plan sponsors historically have stressed employees’ need to save for retirement, then, during the COVID-19 pandemic, about one-quarter had to take a hardship withdrawal from their retirement plan because they didn’t have emergency savings,” says Rebecca Liebman, founder and CEO of LearnLux, a workplace financial well-being program provider. “And employers need to look at more than employees’ retirement plan actions. We see people maxing out their retirement savings, but they have thousands of dollars in debt. People have many financial problems causing them stress.”

Liebman says financial well-being programs have evolved over the years; they historically were mostly used by high-net-worth employees, but that has changed. “No matter how much income someone has, they all need some type of financial guidance,” she says. “So we see people of all income levels seeking help with financial wellness, and employers are recognizing this.”

LearnLux explored thousands of aggregated, anonymized data points from October 2020 to October 2021 via its financial well-being platform. It included a sample of 1,012 employees representing a wide range of job functions, income levels and geographic locations. That analysis found that 92% of employees report some degree of financial stress, and this is true at all income levels—95.1% of employees making $75,000 or more report feeling financially stressed.

According to LearnLux’s “Employee Financial Wellbeing Report: Year in Review 2021,” the top things causing financial stress are investing (57.5%), sticking to a budget (47.7%), unexpected expenses (40.3%), buying a home (34.5%) and the economy (31%). Interestingly, retirement did not make it into the top 10.

Building savings is the top goal for employees making less than $75,000, and planning for retirement is the top goal for employees making more than $75,000. Paying off credit card debt is a goal for 29.8% of employees in the analysis and paying off student loan debt is a goal for 26.4%.

While individuals were given a reprieve from paying student loan debt during the pandemic, that relief is ending in January. Many employees aren’t prepared, and experts say employers have an opportunity to help with the financial burdens their workers face as they prepare to start paying their debt off again. 

Liebman says the main problem LearnLux sees is employees having difficulty addressing competing financial goals. “They want to save for emergencies or for retirement, but they have debt or are saving for a home,” she says. “They need decision support for how to allocate their money.”

Some of the top suggestions given to employees who use LearnLux’s financial wellness program include:

  • Pay down high-interest debt;
  • Save enough to get an employer-sponsored retirement plan match;
  • Save $1,000 for emergencies;
  • Use a health savings account (HSA); and
  • Pay down non-mortgage debt.

The LearnLux report says taking small steps along the way makes reaching big goals achievable.

Using a financial wellness program and/or a financial planner is a good way for employers to help because, in many cases, they can’t legally provide answers to some of their employees’ questions, Liebman notes. She adds data gleaned from financial wellness providers can be used to recognize what employees need and determine what offerings they can put on the benefits menu.

Research has shown that people of all ages are seeking more help with financial wellness and retirement savings and planning, and many are interested in financial wellness help from financial advisers.

Seventy-eight percent of employees surveyed by Betterment say it’s important that their employer offer financial wellness benefits, with 83% saying they view financial wellness benefits as a sign that their employer values them and their work. Nearly eight in 10 (78%) want their employers to more proactively and clearly communicate the financial wellness benefits they offer.

LearnLux says life events such as getting married and starting a family are key decision points in a person’s financial life. “Offering employees education and guidance on these events can help them feel financially resilient,” the company says in its report.

Liebman says the main financial wellness focus for 2022 is rebuilding emergency savings.

“Over the past year and a half, people had to dip into their savings for themselves or a loved one,” she notes. Other trends that will impact employees’ financial well-being most in the coming year include navigating cash flow changes, choosing the right health insurance/voluntary benefits, preparing for big life events and saving for retirement.

Experts also say monitoring improvements in employees’ financial lives effectively gauges the success of employer financial wellness programs.

Client Service December 14, 2021

More Sponsors Seeking Expert Advisers

After a year of nuanced challenges, plan sponsors say they are looking to DC plan specialists for a broad spectrum of advice, and they want higher levels of expertise.

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Voya Investment Management (IM), the asset management business of Voya Financial Inc., has announced the findings of the third edition of its survey of plan sponsors and defined contribution (DC) specialist advisers. The survey was developed to help DC specialists better understand the needs of their clients and prospects, while giving plan sponsors a chance to voice their hopes and concerns.

The survey, conducted in 2021 between mid-February and early March, found sponsors and DC specialists continue to share views on many aspects of retirement plan support and service, but where differences exist, they indicate that DC specialists feel their services add greater value than plan sponsors recognize—pointing to an opportunity for DC specialists to better demonstrate their value.

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“Sponsors told us they are looking to specialists for a broad spectrum of advice and want higher levels of expertise, which again underscores the need for specialists to make sponsors aware of all that they can do,” says Jake Tuzza, Voya IM head of intermediary distribution.

A change noted in this year’s survey results is that sponsors are paying more attention to plan design issues, as guidance on updating plan design and features was the second most frequently cited DC specialist support area being sought. The survey did find upticks in sponsor recognition that DC specialists help keep plan costs reasonable (93%) and that DC specialist compensation is proportional to the support provided (85%). Also encouraging, Voya says sponsors are more likely to say they understand the DC specialist’s compensation and fee disclosures (73%).

“Given the results of this survey, there are things specialists can do that demonstrate their value,” Tuzza says. “For example, articulate your value by drawing up an inventory of the services you provide to each sponsor and assess yourself on how closely your services focus on their priorities. We also recommend embracing ESG [environmental, social and governance] in the investment selection process. We expect to see increased demand for ESG strategies—especially as younger employees come to represent a greater percentage of plan participants.”

The survey also looked at several other issues impacting sponsors and specialists, including the impact of COVID-19, use of target-date funds (TDFs) and the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

Voya says the most common pandemic-related impact on retirement plans was an increase in hardship withdrawals. Only one in five sponsors saw no impacts, and many noted the need for “post-COVID realignment” to drive better participant and plan outcomes. The pandemic amplified trends that already were underway, including increased attention to plan design, review and rebidding of service contracts and an emphasis on the digital experience.

Many industry professionals see TDFs as “foundational” components of a retirement plan and less of a forefront concern. Yet, the study found that mid-sized plans have significantly increased their use of TDFs since 2018, from 56% to 74%, in line with larger plans. Smaller plans now stand alone with lower usage levels at about 53%. In aggregate, nearly six in 10 sponsors include TDFs in their plans, an increase from 2018. Of the aggregate four in 10 sponsors whose plans do not currently offer TDFs, two in five say they would prefer to include them, up from one in three in 2018 and one in four in 2016.

The study also found that most sponsors and DC specialists agree that the SECURE Act has encouraged plans to adopt a focus on retirement income. Offering a retirement income solution can complement financial wellness programs, such as online tools and calculators, education on retirement income planning and education on investing. While the majority of sponsors plan to offer retirement income options, such as guaranteed income for life products, these options are not yet widely offered.

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